Minimum Wage Hike Backfires on Employees, Costs Customers More

The minimum wage hike across North America is having an effect on fast food and other restaurants, in many cases to the detriment of employees and customers. Some food establishments are notifying workers that their benefits will now be decreasing, and alerting customers they will be paying more for menu items, all because of the rise in minimum wage.

Colorado-based Red Robin Gourmet Burgers and Brews is addressing the rise in minimum wage in several ways, according to a New York Postarticle yesterday. This week the company announced that by eliminating busboys at each of its 570 restaurants, the chain will hopefully save approximately $8 million this year. "We need to do that to address the labor increases we've seen," Red Robin's chief financial officer Guy Constant told attendees at the ICR retail conference.

The burger chain last year eliminated "expediters" from its staff, those who plate the food in the kitchen, to then be served to customers by waitpersons. Red Robin said the company has already seen a cost savings of nearly $10 million.

Management has also announced that it has been investing in ramping up its delivery options, and existing staff is expected to pick up the slack once the busboys are eliminated. Restaurant analyst John Gordon told the Post that while "the costs will definitely be pared, the problem with slashing busboy jobs is that it cuts into customer service."

Canada is also feeling the effects

The Hamilton Spectator reported today that signs in restaurants announcing price increases and letters to employees informing them their benefits will be slashed "have grown rampant in Ontario, revealing two very different approaches businesses have gravitated toward in the wake of province's minimum wage hike."

Tim Hortons, headquartered in Oakville, Ontario, is feeling the effects. The report states that the company's franchises have faced significant backlash after cutting paid breaks and forcing workers to cover some of their dental and health benefits to compensate for the minimum wage jump from $11.60 an hour to $14 an hour last week, while chains such as Pizza Nova say they will be upping prices instead."

Sylvain Charlebois, dean of Dalhousie University's faculty of management, said the way companies decide how to handle the situation of a higher minimum wage may be as simple as timing. He explained that there was little evidence that Restaurant Brands International Inc., parent company of Tim Hortons, worked out a strategy with its franchisees before Ontario's new wage rate came into effect on January 1, 2018. The Dean told The Spectator, "It is not a surprise. Everyone knew it was coming."

Charlebois said price increases take time to calculate and roll out, and if franchisors and other companies with multiple franchise owners or locations didn't plan ahead they are probably scrambling to adjust to the hike and target their workers instead. "Food Services are heavily affected because most of their workers are paid minimum wage and they can't rely on robotics and automation, but things like changing benefits or asking employees to pay for uniforms are things you can change very quickly," Charlebois stated.

But raising prices on menus can also be a problem. The report said customers will only let restaurants go so far before they decide to drive down the street to a competitor. The Journal of Labour Research has shown food service companies "can only sustain a three per cent increase over a few years, which Charlebois said often sales in comparison to the amount needed to offset higher labour costs."

Ontario Labour Minister Kevin Flynn takes a different view. "I think any business having to make decisions would take a look at, is my pricing fair? Is this something where I can make a profit, but make sure that the people that I'm paying, the people that I'm employing, aren't living in poverty," he said. But Flynn adds, "Those aren't questions all business owners can mull over. Franchisees, for example, often aren't allowed to raise prices."

Tim Horton franchisee association forced to go it alone

The Great White North Franchisee Association, representing a group of Tim Horton franchisees, expressed that without help in raising prices among other cost offsetting requests from their parent company, Restaurant Brands, they have been forced to take steps to protect their business, The Hamilton Spectator reported. But Tim Hortons corporate said in a statement that "franchisees could offset costs by analyzing their top-line sales, operational efficiencies, and savings on equipment and costs such as waste management."

"The statement came days after head office called franchisees who took aim at employee benefits, calling them 'reckless' and 'completely unacceptable,' and said staff 'should never be used to further an agenda or be treated as just an 'expense.'

Tim Horton franchisees Ron Joyce Jr. and his wife Jeri-Lynn Horton-Joyce in Ontario said they will no long pay for work breaks for employees at their restaurant, and their employees will have to now pay 75 percent of the cost of providing health care benefits,CBC News reported last week. The coffee/donut store is owned by the son and daughter of the chain's cofounders, Ron Joyce and the late Tim Horton.

The franchisee entity, Ron Joyce Jr. Enterprises, wrote in a letter to employees: "Breaks will no longer be paid. A 9-hour shift will be paid for 8 hours and 20 minutes." It further explains, "These changes are due to the increase of wages to $14.00 minimum wage on January 1, 2018, then $15.00 per45 hour on January 1, 2019, as well as the lack of assistance and financial help from our Head Office and from the Government."

"Ontario's Employment Standards Act does not require employers to give employees coffee breaks or any other kind of break other than eating periods," CBC News stated.

One employee with over five-years of service told CBC News that prior to the minimum wage increase this year, their benefits were covered 100 percent by the franchisee company. She said, "That was a big benefit for the people who work at Tim Hortons, because it's not a great paying job."

About Janet Sparks

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Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.